Will Osborne's Recovery Stick? 3 Undervalued British Stocks

James Dennin, Kapitall: Growth in trade, investment, and spending boosted the UK economy, so we looked for undervalued British stocks.

The United Kingdom's economy grew for a fourth straight quarter this year leading many analysts to declare George Osborne's recovery plan is well underway. The fact that most of the growth came from trade, which was Osborne's focus, seems to be another feather in the Chancellor of the Exchequer's cap.

The UK economy still has liabilities. It is very connected to Europe where the recovery is more fragile. And with the pound trading high against the dollar (about 1 GBP to 1.60 USD) the robust exports which have spurred growth are fragile as well.

That being said, trade and consumer sentiment are both up. More importantly, companies are also ramping up investment, which leads to more jobs. One of Osborne's chief initiatives, Project Merlin, was meant to help restore confidence in the financial sector. The agreement puts caps on bonus pay and requires that major institutions lend a certain amount to small businesses.

If the British economy really is on firmer ground, it might present a good opportunity for investors who are looking to get leverage on the European equity market. We decided to look for undervalued stocks that are based in the UK.

To do that we decided to screen for stocks experiencing a mismatch between earnings-per-share and stock price. Rising earnings-per-share indicates the company is growing more profitable. Either their products are growing in value or the company is getting more efficient. Rising EPS and stagnant stock price suggests that the company is undervalued.

We took all of the British stocks that trade on American exchanges and looked for ones experiencing an EPS/Price mismatch. Three companies made it through the screen.

���Click on the interactive chart below to view data over time.

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